Do You Have a Strategic Exit Plan? 5 Reasons You Need One

By John Ovrom

Some entrepreneurs go into business with the intent to build, sell, and move on. Others spend decades building and running their businesses. Regardless of your intentions of starting your business, you need to have a strategic exit plan in mind. Here are five reasons an exit plan is essential:

1. Everyone Will Exit Their Business

The only variable is if the exit is planned or unplanned. Even if the thought of selling your business seems inconceivable, know that you will not run the business forever. At some point, every business owner steps down from the helm.

This can be due to any of the following reasons:

• Retirement

• Passing it onto children

• Selling

• Health issues limiting the ability to run the business

Your transition will be defined by how well you plan for it.

2. Goals Are Best Achieved on Purpose

Most people have a hard time achieving a goal without a plan. An exit strategy is just a road map outlining steps to achieve your personal goals for the business.

Entrepreneurs do, and should have, several different long-term goals for their businesses. Common business goals revolve around personal objectives:

• Using the sale of the business to fund retirement

• Having the business succeed for future generations

• Traveling

• Enjoying more time with family

• Reducing stress and focusing on healthy living

Strategic exit plans allow you to maximize the value of your business. This is a key element to achieving your goals, but it doesn’t happen overnight. Without a road map, too many business owners miss the opportunity to achieve their goals.

3. Exit at the Right Time

I’ve seen countless business owners wanting to exit immediately because of life circumstances. The shortest exits are typically due to failing health; other times business owners are ready to be done. When life circumstances dictate an unprepared exit, it rarely goes smoothly.

Just because you are ready to exit your business, doesn’t mean the business is ready. Systems need to set up so the business runs without you. Value drivers need to be established to meet your ideal sell price. The business needs to be in good financial health.

Exiting your business for the right reasons and at the right time requires planning.

4. A Plan Doesn’t Mean You’re Ready to Exit

Just because you have an exit strategy doesn’t mean you have to exit today. It just means that you know what your exit will look like. Design your business with your end goals in mind.

Your 1-3-5-year business plans should always be measured against the eventual exit plan. That way you are prepared should you decide to exit.

5. Your Business Is Your Largest Asset

Because your business is usually one of the largest assets in your estate, it’s not uncommon for business owners to count on the sale of the business to fund their retirement.

Unfortunately, there is a big myth around business value; sale price is not the same as the business value.

Business values are completed for many different reasons, such as insurance. This isn’t to say that the mathematical value of the business is wrong -- most likely it is accurate. What happens is that you cannot sell your business in the marketplace for that price.

There are many complex factors that go into a business sale price. For example, how involved is the owner? If the owner is integral to the success of the business, someone buying the business will essentially be buying a job. On the other hand, if the business runs itself independent of the owner, that business will be more valuable to a buyer.

Business owners should have a strong understanding of what the market value of their business is. That way, they can take strategic measures to increase the market value if necessary.

Conclusion

It’s never too early to outline your long-term goals for your business. A strategic exit plan gives you the tools to build a comprehensive road map for your business. As a business owner, you can never be too prepared to achieve your goals.